Congress and the White House are arguing over a $700 billion bailout. But what's the urgency?
The banking system has been teetering on frozen. Banks became so worried that other banks were going to fail that they were hesitating to lend to each other. Our economy works on confidence and all the confidence was gone last week. Warren Buffett referred to last Thursday as a financial Pearl Harbor.
How is this government bailout going to restore confidence?
Today, Banks are stuck holding mortgages and other assets that they are unable to sell. That has led them to pull back on new mortgages, but also car loans, small business loans and other critical components of our economy. The bailout package will give the government the money to buy these assets from banks so they can keep financing our economy.
- Banks are holding mortgages they are unable to sell
- Bailout will give government money to buy these loans
- Government bailout will help restore confidence
The market is watching progress on the bailout feverishly. Several exchanges had four record trading days in a row last week. Obviously this bailout needs to happen in some form.
- Volatile market
- Four record trading days last week
Your money is safe as long as you have confirmed that your bank in FDIC insured. FDIC insures deposits up to $100,000 per person and $200,000 for married couples. If you have more then $100,000 in an account, I recommend dividing your money among several banks and stay within the $100,000 limit. But most importantly, we have gotten extraordinary leadership from the Fed and the Treasury department so no need to do anything rash.
- Confirm your bank is FDIC insured
- FDIC insures deposits up to $100,000/person
- More than $100k? Divide it among banks